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Chevron wins in court, avoiding $9 billion rainforest fine

Chevron doesn't have to pay Ecuadorean judgment because lawyers obtained it by corrupt means, a New York federal judge rules. Chevron had been sued for environmental damage to the rainforest from oil operations.

Mayra Beltran/Houston Chronicle/AP

Chevron CEO John Watson speaks at the IHS CERAWeek energy conference Tuesday, March 4, 2014, in Houston. The oil company said it won 'a resounding victory for Chevron and our stockholders' when a federal judge blocked US courts from collecting an Ecuadorean judgment against it.

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March 4, 2014

By Larry NeumeisterAssociated Press

NEW YORK

A federal judge on Tuesday blocked U.S. courts from being used to collect a $9 billion Ecuadorean judgment against Chevron for rainforest damage, saying lawyers poisoned an honorable quest with their illegal and wrongful conduct.

"Justice is not served by inflicting injustice. The ends do not justify the means," U.S. District Judge Lewis A. Kaplan wrote. The judge said it was a sad outcome to have to rule that the Ecuadorean court judgment "was obtained by corrupt means," because it will likely never be known whether there was a case to be made against the San Ramon, California-based oil company.

"It is distressing that the course of justice was perverted," Kaplan wrote in a nearly 500-page ruling that followed a trial last year.

He said a New York City lawyer, Steven Donziger, and Ecuadorean lawyers corrupted the case in Ecuador by submitting fraudulent evidence, coercing a judge and arranging to write the multibillion-dollar judgment themselves by promising $500,000 to the Ecuadorean judge to rule in their favor.

Donziger, criticized heavily in the ruling, said he will seek an expedited appeal of "an appalling decision resulting from a deeply flawed proceeding."

He said Kaplan was "wrong on the law and wrong on the facts." He accused Kaplan of letting "his implacable hostility toward me, my Ecuadorean clients and their country infect his view of the case."

In a statement, Chevron Corp. called the decision "a resounding victory for Chevron and our stockholders" and said any court that respects the rule of law will find the Ecuadorean judgment "illegitimate and unenforceable."

The Embassy of Ecuador in the U.S., noting that Ecuador is not a party to the action, said in a statement that the ruling "does not exonerate Chevron from its own legal and moral responsibilities resulting from its decades of contamination of the rainforest that has endangered the lives, culture, and environment of countless poor, indigenous people."

Meanwhile, attorney Juan Pablo Saenz, a lawyer for Ecuadoreans, said the decision "constitutes a mockery of the rule of law and will not serve to reduce the risk the oil company faces in the imminent collection of the sentence dictated against it by the Ecuadorean justice system."

The case resulted from a long-running court battle between Amazon rainforest residents and oil companies.

In February 2011, a judge in Ecuador issued an $18 billion judgment against Chevron in a lawsuit brought on behalf of 30,000 residents. The judgment was for environmental damage caused by Texaco during its operation of an oil consortium in the rainforest from 1972 to 1990. Chevron later bought Texaco.

Ecuador's highest court last year upheld the verdict but reduced the judgment to about $9.5 billion.

Chevron has long argued that a 1998 agreement Texaco signed with Ecuador after a $40 million cleanup absolves it of liability. It claims Ecuador's state-run oil company is responsible for much of the pollution in the oil patch that Texaco quit more than two decades ago.

The Ecuadorean plaintiffs said the cleanup was a sham and didn't exempt third-party claims.

The decision came in a lawsuit Chevron brought in Manhattan against Donziger and two of his Ecuadorian clients to prevent any of them from profiting from what the oil company characterized as a fraud.

Kaplan on Tuesday barred Donziger and the other defendants from trying to collect the judgment through U.S. courts and said they may not take any actions to profit from the judgment. He said any property Donziger or the other defendants receive as a result of the judgment anywhere in the world must be transferred to Chevron. He also ordered them to pay Chevron's legal costs.

A lawyer for Donziger — Richard Friedman — said the ruling was disappointing but not unexpected. He predicted it will be reversed on appeal.

Donziger's appeals lawyer, Deepak Gupta, said Kaplan's ruling amounted to "what is in effect a global anti-collection injunction that would preclude enforcement of a judgment from another country in every jurisdiction." He said it was indistinguishable from a ruling by Kaplan in early 2011 banning collection of the judgment anywhere in the world. That decision was struck down on appeal.

During the juryless trial, Donziger acknowledged that he stood to make about $600 million if the $9 billion judgment was approved.

Donziger said in his statement Tuesday that his clients will try to collect the judgment in other countries.

"The villagers deserve justice, and I am confident they will get it despite Chevron's effort to flout the rule of law," he said.

Donziger has been sued in New York State Supreme Court by attorneys Judith Kimerling and Kathryn Lee Crawford, who represent the Huaorani people, one of five groups of indigenous groups of people in an area of Ecuador harmed by oil exploration.

They allege that Donziger and other lawyers are aggressively trying to collect the judgment in places like Canada, Brazil and Argentina without ensuring that collected money makes it to the harmed populations.

Kimerling said the ruling Tuesday represented a "heartbreaking" turn in more than two decades of litigation and she fears Chevron will use it to taint the credibility of the victims' claims and jeopardize their rights to remedy.

She said the result was sad because it will prevent those living in the rainforest from being compensated for harms that continue to be felt.

"The voice of the indigenous people has not been heard," said Crawford, a Los Angeles lawyer.

Kaplan said in his decision that it did not matter if the efforts by the villagers came in a just pursuit.

"There is no 'Robin Hood' defense to illegal and wrongful conduct. And the defendants' 'this-is-the-way-it-is-done-in-Ecuador' excuses — actually a remarkable insult to the people of Ecuador — do not help them," he wrote. "The wrongful actions of Donziger and his Ecuadorian legal team would be offensive to the laws of any nation that aspires to the rule of law, including Ecuador — and they knew it."